“Go to the supermarket and buy all these items. And for the baby, don’t bring anything other than XXX Baby food” – instructs a typical Indian wife to her husband before sending him out for grocery shopping. But what if XXX Baby food isn’t available? The husband quivers at the thought. His wife would let loose her wrath upon him, if that misfortune was to befall upon him. So he quickly makes up Plan B – He decides all the supermarkets he would try in, in case the baby food wasn’t available , and Plan C – Call his wife and tell her, and wait for her to finish screaming, until she calmed down and told him what to do. But surprise of surprise – his fears proved unnecessary, as he was able to get the correct brand. Content, he buys the rest of the stuff and goes home to a satisfied wife and a peaceful home.
A common scenario in most households. Today, most of these situations have happy endings. All this is due to the sharp improvement in supply chain management by most firms in India, followed by the growing demand for 3PL services. 3PL – or third party Logistics companies specialise in fulfilling the logistical and supply chain needs of their clients. This means, that they take care of all the activities involved in supplying products from the manufacturer to the customer in the shortest possible time, so that happy endings like the above occur in all households using the products. 3PL providers not only serve FMCG companies, but also companies in sectors like Retail, Auto, Telecomm, Agricultural goods, Express delivery and so on.
The advantage of using the services of a 3PL firm is that the company can focus all its attention on manufacturing of the product, or marketing the product, or any activity that it perceives as its core competency, and gain more profits, rather than diverting its resources on logistics and supply chain management, in which it may not be very good at. These services are especially helpful for MNCs which want to gain a share in the Indian market, but does not have enough knowledge of the country’s terrain, legal requirements, routes, people, culture etc in order to be able to ensure that its products are delivered to its customers in a timely fashion, with no damage, and that no customer in India should ever be deprived of the opportunity to buy its product due to unavailability in shops.
3PL industry in India is estimated to be a $3556.7 million industry by the end of 2012. It is rapidly growing at a rate over 21%, and was pioneered by Indian subsidies of large MNCs in the 1990s. These companies took cues at increasing profits through outsourcing functions that are not their core competencies from their parent companies. Indian companies like Mahindra & Mahindra, Reliance, Tata, etc saw the huge opportunities of 3PL, and made their investments early into this sector, which give them an edge over other 3PL providers today. The total share of India and China in the logistics cost is 13-15% of the GDP, which shows significant scope for the 3PL industry in these markets to grow.
Currently, there are over 400 players in this industry. 3PL services primarily start with warehousing and transportation services, and then gradually move over to other parts of the supply chain. These days, there is a lot of emphasis on value added services – like consolidation management, assortment packing, labelling and repackaging, etc. There is also a new vertical – people logistics, which involves in providing services for enabling the movement of people. These services are used by IT\BPO companies for providing safe and timely transportation for their employees, transporting employees of companies into rural areas where transportation is not easily available, and so on.
While there are few large corporations like Mahindra, Tata, Reliance and so on, which provide all possible logistics functions to their clients under a single umbrella, most players provide only 1 or 2 kinds of services, and form strategic alliances with each other to provide the other services. The major challenges faced by 3PL providers are lack of proper infrastructure in India (like roads), large amount of legalities and red-tape for inter-state transportation and difference in cultures across states, which increase their costs. But with more steps from the government like construction of the NEWS highway network, the Golden Quadrilateral and introduction of VAT, 3PL companies are sure to thrive.